Serial bank failures: could the stablecoin USDC collapse?

In the wake of the flash bankruptcy of Silvergate and Silicon Valley Bank, the entire financial and banking ecosystem has been subjected to a giant stress test for the past 24 hours. The crypto industry is no exception, and the market is heavily impacted by an event that everyone fears without really admitting that it is systemic. And if the storm roars from all sides, it is towards the USDC stablecoin of Circle (Coinbase) that the most worried eyes are turning.

1 billion USDC converted into dollars

From the very study of the tool Circle monitoring tool to monitor the evolution of the USDC stablecoin, the total capitalization of the stablecoin fell by more than a billion dollars since Friday morning.

These data, confirmed by the specialized firm Nansenshow that a large number of USDC holders have exchanged their tokens for their equivalent in dollars, for fear that the stablecoin of Coinbase will enter a death spiral, like what the UST experienced. of Terra in 2022 (even if it should be emphasized that the situations are in no way comparable, from any point of view).

There capitalization USDC is now $40.7 billion.

Despite the good reputation of the USDC, this massive pullback resulted in a slight depeg of the USDC from its dollar equivalent. Result: a fall of -1.5%, a minor variation, but which remains graphically impressive for a type of asset that we prefer to see follow a perfectly straight trajectory.

What exposure does Circle have at Silvergate and Silicon Valley Bank?

Another source of concern for the crypto market, has arisen in recent hours the question of the exposure of certain major players in the industry to the banks Silvergate and Silicon Valley Bank. Circle has yet to respond in detail to the solicitations, only pointing out that “Silicon Valley Bank was one of six banks that managed ‘the approximately 25% share of USDC reserves held in cash'”.

25%, or about 10 billion dollars, a figure confirmed from an independent source, last January.

A somewhat roundabout way of encouraging the community to exercise their math skills and determining that Circle could have 1.3 billion “at risk” assets managed by Silicon Valley Bank (on the unconfirmed assumption that each of these 6 banks had to manage an equivalent fraction of all cash to ensure USDC dollar stability).

For completeness, it will be recalled that Circle indicated by way of communicated March 4 have “transferred the small percentage of [ses] USDC reserve deposits held at Silvergate to its other banking partners. ».

We will probably have to wait a bit for the dust of the collapse of Silvergate and Silicon Valley Bank to settle in order to determine with more precision the amount of the potential losses of each other. For now, the whole industry is holding its breath hoping that a wave of panic does not rise, making the prophecy of a potentially systemic banking collapse self-fulfilling.